These definitions are the terms commonly used within the lending industry. Some terms may have different meanings to other institutions. This is not an exhaustive list but will hopefully prove a useful resource.

Accountant’s letter

- a letter of income confirmation provided by an accountant (normally chartered or certified). Some lenders may accept an accountant’s letter in lieu of audited accounts. Normally only for self employed applicants with a low loan to value ratio.

Additional security

- when lending exceeds a certain loan to value percentage, lenders may look to secure additional security. (also see third party security)

Agricultural tie

- restrictions placed on certain rural properties which require that the land adjoining a property be actively used for farming.

Annualised percentage rate (APR)

- a definition intended to identify the true cost of borrowing and to provide the consumer with a method of comparing the true costs of different types of loan. It is a legal requirement that a true APR figure be provided with any loan illustration.

Annuity mortgage

- an alternative term used to describe a capital and interest repayment style mortgage.

Arrangement fees

- the fee charged by a lender for setting up the loan. Normally payable upon completion but sometimes can be added to the loan.

Arrears

- mortgage or loan payments that have not been made on their due date in accordance with the mortgage deed, or loan documentation.

Base rate

- set by the  Bank of England. The lenders will normally set their standard variable rate higher than base rate and adjust it as and when base rate changes.

Bankrupt

- an individual who has been declared bankrupt in accordance with the Insolvency Act. A supervisor is appointed to receive a bankrupt person’s earnings. The bankrupt is permitted to receive an allowance on which to live with the balance being reserved for the benefit of his or her creditors.

Bid

- the amount that someone (the bidder) offers to pay for a property at auction. The auctioneer often controls the amount by which bids can increase although bidders can suggest a different amount if they wish.

Booking fee

- the fee charged by a lender to secure mortgage funds, payable at the time the application is submitted. Normally applies to special offers such as fixed or capped rates.

Broker fee

- fee charged by an intermediary to the applicant for negotiating a loan.

Buy-to-let mortgages

The practice of buying a house or flat for investment purposes. The rental income pays the mortgage on the property. The landlords would also like to see the capital value of the property increase over the years.

Capital

- the principal part of a loan, the original amount borrowed.

Capital and Interest

- a type of mortgage where your monthly payment is split between paying interest and repaying the original capital borrowed. The full amount will be repaid over the term of  loan—this is also known as a repayment mortgage.

Capped rates

- the mortgage interest rate will exceed a specified value during a certain period of time but it will fluctuate up and down below that level.

Cash Back

- an incentive payment made by a lender to the borrower upon completion of a mortgage. Payments made as cashbacks may be treated as gifts and subject to capital gains tax.

CCJ

- County Court Judgment—a judgment for debt in the county court. If the judgment is settled in full within 30 days of the date of the judgment it will not appear in the credit register. In the event of the payment after that date the judgment will appear in the register but will be shown as satisfied.

If a judgment has not been settled and is outstanding this is likely to lead to many lenders refusing your mortgage application. Some may also decline your application even if the judgment has been satisfied. Mortgages can still be obtained for people with CCJs but it is likely that you will be charged a higher interest rate.

Colateral

- an asset pledged by a borrower to secure a loan or mortgage. The asset can be seized if the loan repayments are not made.

Commercial mortgage

-A commercial mortgage is probably the best way to finance the purchase of buildings and land for business purposes.

Completion

- when the full amount has been paid, the legal formalities have been finalised and the transfer has been signed.

Contents Insurance

- the insurance of your belongings within your home i.e. furniture, televisions, personal possessions etc. The cover normally provides against fire, flood etc.

Contents cover normally covers goods within the home but for a small premium you can have your belongings covered outside the home. e.g. perhaps taking a video camera away from the home.

You may also wish to add accidental damage cover as another option.

Conveyancing fee

- fee charged by a solicitor or licensed conveyancer for arranging the necessary legal work I transferring the ownership of a property. The total cost of the legal work also includes: stamp duty, land registry fees and other disbursements such as searches.

Credit Check

- an enquiry made on the credit history of an applicant, normally made to one of the major credit agencies such as Equifax or Experian.

Credit Scoring

- method of assessing a loan, by scoring various answers given on a mortgage or loan application. It is essential that all questions on an application form.

Critical Illness Insurance

- this is an insurance policy that will pay out a selected sum assured on the diagnosis of stated critical illnesses e.g. a heart attack, stroke, certain cancers.

Current account / mortgages

- a currant account is a bank account linked to a cheque book and debit card. In exchange for instant access to your monies the bank gives little or no interest on the funds. You may look link a mortgage with your current and benefit from an offset style mortgage. See definition late of Offset.  

Debt consolidation

- replacing a number of existing loans with a single loan from a new lender. The idea is to look to reduce your monthly payments by spreading a larger loan over a longer term.

Deeds

- these are the formal written document which lists exactly who owns a property and allows the transfer of ownership from seller to buyer. A mortgage lender will record the details of any loan secured on the property with the deeds.

Deeds release fee

- this is a fee charged by the lender for releasing the deeds of the mortgaged property and returning the to the owner or his solicitor, usually when the mortgage is repaid.

Deferred interest

An old style mortgage whereby some or all of the interest owed by the borrower is not paid initially but added to the amount outstanding and this results in increased debt that needs to be repaid by increased payments in the future.

Deposit

- money paid by the purchaser when contracts are exchanged

Disbursements conveyancing

- costs incurred by solicitors in carrying out their work which they will bill their clients for, these can include: photocopying, postage

Discharge fee

- a fee charged by a lender who releasing it’s charge over a property following the repayment of their loan.

Discounted purchase price

- the price of a property that has been reduced to below it’s open market value perhaps by a builder as an incentive or perhaps under the right-to-buy scheme.

Discounted rate

- a  special mortgage deal where the rate charged is lower than the current normal standard variable rate for a certain period of time

Down payment

- part of the purchase price that the buyer is wiling to pay up front in cash as a deposit.

Discharged bankrupt

- a person whose period of bankruptcy has ended

Draw down facility

-an additional borrowing opportunity that is agreed with a lender but  not necessarily drawdown at the outset. 

Early redemption payment

- penalty charged by a lender for withdrawing from a mortgage before given date specified in the mortgage conditions. These penalties are normally imposed on fixed or discounted loans.

Earned income

- income that is earned from employment or self employment, as distinct from investment income or income from property.

Employed

- normally refers to a person (the employee) who has a contract of employment and has income tax and national insurance deducted from their salary.

Employment status

- basis of an individual’s employment: i.e. employed, self-employed, controlling director or not in employment

Entering a property

- the term used for putting a property up for sale at auction.

Equity

- the property value less any outstanding mortgage, stake that you own in your home.

Exchange of contracts

- when the seller and the buyer formally sign documentation that means they have agreed terms and to withdraw form the deal now would mean a loss of the deposit monies. In auctions the fall of the auctioneer’s hammer or gavel means that contract have been exchanged.

Feuhold

the equivalent of freehold under Scottish Law.

First charge

- this is the normal legal charge used to secure the main mortgage. A lender with a first charge over a property has a first call on any funds available from the sale of the property. See second charge.  

Fixed Rate

- a loan where the initial payments are based on a certain interest rate for a stated period and the rate payable will not change during the initial period regardless of any changes in bank base rate and the lender’s standard variable rate.

Flat over a shop

- residential property over retail premises can be difficult to get a mortgage on. Flats over shops can be harder to sell and some lenders just will not lend on them. A flat over a take-away will no doubt be harder to sell and get a mortgage on than a flat over a nice antique shop.

Freehold

- land or property which is owned outright is called freehold. See leasehold

Freehold flat

- a flat which has the freehold of the land on which it is built.

Full Status

- a loan where the lender performs all the checks on the applicant’s credit history and income.

Gavel

- the hammer the auctioneer uses to close the bidding on a lot.

Guarantors

- as part of the mortgage or loan, the lender may require a guarantor. The guarantor can become liable for the debt if the main borrower is unable to make their loan repayments.  

Guide price

- this provides an indication of the level at which the reserve may be set, the guide price must not be reined upon as a valuation or assessment of value. Te eventual sale price may be above or below the guide price.

Hire Purchase

- a form of asset finance that enables you to eventually secure ownership of an asset. The cost of the asset can be spread over its useful working life and paid for out of the revenue it earns.

Homebuyer’s valuation fee

- the fee paid for a fuller inspection of the property you are thinking of buying which is more thorough than the normal lender’s valuation.

House or flat buyers report

- more than just a simple valuation report, a fuller inspection.

Housing association

- a society set up to provide, improve and manage housing accommodation, Housing associations do not trade for profit , They can help people get on the market under shared ownership.

Impaired Credit

- often referred to as adverse credit. Applicants may have encountered financial difficulties in the past and have a poor credit history. Some lenders specialise in assisting borrowers with credit problems.

Individual Voluntary Arrangement (IVA)

- introduced in the Insolvency Act 1986 with the intention of allowing an individual to avoid bankruptcy and make maximum possible restitution to creditors. Seen as better than bankruptcy as the individual is able to keep the tools of their trade.

Insurance

- The act of insuring or assuring against loss or damage by a contingent event; a contract whereby, for a stipulated payment called a premium, an insurance company undertakes to indemnify or guarantee you against loss by certain specified risks.

Interest-only

- With an interest-only mortgage, only the interest is actually paid off with each monthly mortgage payment. So to repay the capital borrowed at the end of the term you either need to sell the asset or have in place some form of repayment vehicle.

Introducer

- person who introduces a loan to a lender

Land registry fees

- fees payable to the land registry to change an entry in their records e.g. change of ownership on a sale.

Land registry

- a government department which record the ownership of property and any mortgages registered against them.

Landord’s reference

- reference from the previous landlord regarding the conduct of your tenancy—was the rent paid on time, was care taken with the property.  

Leasing

- a form of asset finance. Leasing allows the company full use of an asset for an agreed period of time at an agreed monthly or quarterly rental.

Leasehold

- this is where the land on which a property is built is not owned directly by the property purchaser and is held under a lease for a fixed period.  

Legal Charge

- the means by which lenders enforce their rights to a property it is recorded at the land registry. Lenders use differing charges: banks tend to use an all monies charge allowing then to free equity in a property if it is owned by them. This allows them to recover overdrafts and other loans. A building society will lend on a first charge and only on a second chare if they have the first charge. Many secured loans are secured via a second charge on a property with the first charge holders permission.

Level term assurance

- a life insurance policy that pays out a set amount on death of the person insured in the plan.

LIBOR

- London Interbank Offered Rate is the rate at which banks notionally buy and sell money to each other. It varies from day to day and is closely linked to Base Rate. The relationship of LIBOR to base rate can give an indication of the possible future direction of base rates. If LIBOR is significantly higher than base rate it indicates that the money market feels interest rates are about to increase. If it is significantly below, the  reverse is true. The key LIBOR rate is 3 month LIBOR.

Libor—Linked

- a mortgage or loan linked to LIBOR will be charged at a given margin over the Interbank rate (typically margin 1 to 1.5%). LIBOR rates tend to be more volatile than variable rates and can change every quarter. They can however give you a true cost of the money. In low interest rate periods you would expect to pay less under a LIBOR linked deal and more expensive in times of higher interest rates.

Loan to value ratio (LTV)

- this is the ratio between the loan amount and the value of the security offered expressed as a percentage. Lets say you are borrowing £100,000 on a house worth £200,000 then the Loan to value ration would be 50%. Perhaps on a by to let deal you may get offered 85% or as a first time buyer maybe even a 100% LTV deal.

Local authority search

- a search of the local authority records to confirm the status of the property, reveal any proposed changes in the area, new roads, planning applications received and enforcement notices outstanding.

Lot

When a property is entered for auction it is referred to as a lot and given a lot number.

LTV

- see loan to value ratio just a little higher up the page.

Main residence

- your normal place of residence, your main home. You may well have a second home, a holiday home or buy to let property.

Maisonette

- a term used to describe a flat which extends over more than one floor or a flat in a building which has it’s own private entrance at street level.

Mortgage

- a loan secured by land.

Mortgage deed

- a legal document establishing a loan on a property.

Mortgage protection

In the 70’s, 80’s and 90’s this term was used to describe the life assurance put in place to run alongside a repayment mortgage and pay the mortgage off,  if you were to die before the end of the mortgage term. Over the last 10 years or so it has also been used to cover ASU (Accident, sickness and unemployment cover). ASU is an insurance plan which aims to protect your monthly mortgage payments against you being made unemployed, suffering an accident or long term illness.

Mortgage Term

- length of time the mortgage loan has been taken out over

Negative equity

- this occurs when the market value of the property is less than the debts secured on it.

Net Profit

- the income of a company or self employed business after making full allowance for the expenses of running the business and in the case of a limited company after tax. When assessing the accounts for affordability many banks will look to add back certain expenses e.g. depreciation.   

New build

- this refers to new properties being developed.  For many people buying a new build of plan can be very attractive. The price is secured on exchange of contracts (generally within 28 days of paying a holding deposit). The property may take another 12 months to complete and in which time it’s value may have increased dramatically. People will try and speculate on the value increasing and be worth more than what they paid for it.  

Non status

- this is where a loan or mortgage is granted without the lender making enquires into the borrower’s income.

Open Market value

- the value of the property on the basis of a willing buyer and wiling seller on the open market allowing for a reasonable period of time for it to sell.

Outgoings

- when applying for a loan or mortgage the lender will ask you to list your monthly outgoings, commitments like car finance, personal loans etc.

Outstanding discount

- you will come across this term if you purchased your property under the right to buy scheme at a discounted price. If you decide to sell generally within the first 3 years of exercising your right to buy, you have to pay back a portion of the discount received.

Overpayment

- a mortgage payment that is bigger than the one needed to meet the loan’s minimum requirements.

Payment Holiday

- with some products you can skip some monthly payments by taking a payment holiday. On a mortgage this may be restricted to one of two months payments, with a business loan this may be as long as a year or two. The amount is simply added to what you owe and your remaining payments will increase slightly or your term could be extended.

Payment method

- this refers the means by which you will repay the mortgage capital off at the end of the mortgage term.

Previous lender’s reference

- a reference from a lender who has previously lent money to a prospective borrower regarding the conduct of the loan account.

Principal

- the original amount of the loan , the capital borrowed.

Profit

- gross profit—a profit of a company before allowing for the expenses of running the business. This is not a reliable measure of a company ability to provide income as not all of the gross profit will be available to the owners for distribution.

- net profit—the income of a company or self employed business after making full allowance for the expenses of running the business. This should be the amount available to the owners of the business for their own benefit and consequently is the figure that can be used to fund a mortgage. Note my earlier point under net profit—lenders may look t add some expenses back onto the net profit figure thereby increasing the serviceability of the business.

Redemption

- this is the term used to describe paying off your mortgage in full.  

Redemption Charges

- any charge made by a lender when the mortgage or loan is repaid before the end of the term of the loan.

Refinancing

- generally seen as the taking out of a new mortgage with another ender to replace an existing deal. You may refinance to a new lender to achieve better terms, a cheaper rate of interest, less stringent security required.  You may also use the opportunity to raise some more money.

Regulated Loan

- a loan for under £25,000 regulated by the terms of the Consumer Credit Act.

Remortgages

-this is where you replace your existing mortgage with a new one. You may have simply remortgaged on a lower interest rate to educe your monthly repayments. You may have borrowed more money to pay of some credit cards, help fund a second home or any number of other reasons.

Repayment Mortgages

- with a repayment mortgage, each months mortgage repayment is made up of an element of capital and an element of the accrued interest. At the end of the mortgage term the whole debt will be cleared.

Reserve price

- this is a confidential figure set by the seller at auction. The seller will not sell below this price, however bidding often starts below the reserve price.

Retentions

- the lender may retain funds until such time as terms and conditions of the mortgage offer have been complied with e.g. the value may comment that some damp works need to be carried out, monies would be retained until the works are carried out.

Right to Buy

- the option for council tenants to purchase the property in which they live. Often at a discount which is in proportion to the length of time they have been a tenant.

Sale and leaseback

- equipment sold to a leasing company and then leased back to the business.

Second charge

-a legal charge that ranks behind the first charge or the main mortgage.

Second mortgage

- a further loan on a property which ranks behind the first charge / or main advance.

Self build

- this is where the borrower with the help of a qualified architect and possibly a NHBC builder , builds his own  property. The monies can be released in part payments at various stages of the construction.

Self certification / self cert

- the borrower signs a form to state that he or she earns enough money to be able to afford the mortgage payments. The deal may be limited to 85 to 90%  but the lender makes no checks on income, happy with the borrower’s signed declaration

Self employed

- working for yourself. Many borrowers who are self employed have to use self certified mortgages because their income can fluctuate quite dramatically and they may not have 3 years accounts.

Semi commercial

- a property that has at least part commercial use. Perhaps a take away with living accommodation above.

Shared equity

- a means of purchasing a property in partnership with the builder who offers an incentive for the prospective buyer e.g. 95% paid on completion and 5% payable at some future date. The builder registers a second charge until the 5% is repaid. Unlike shared ownership, the builder does not charge rent or interest on the 5%.

Shared Ownership

- method of purchasing a property in partnership with a Housing Association. The borrower purchases part (say 25%) and rents part. Over a period of years they then look to buy the remaining balance.

Sitting Tenant

- a person who has a legal right of occupation even if the property changes hands. Properties with sitting tenants can be worth around 30% less than their open market value with vacant possession.

Special status or non-status

- also see self –certification. Means of obtaining a mortgage or loan where you do not have to supply evidence of income.

Stamp Duty

- this is a government tax which is charged as a percentage of the purchase price of a property.

Standard Construction

- constructed of brick with a slate or tile roof. Some lenders are reluctant  to lend on non-standard construction such as timber-frame, steel frame, pre-fabricated concrete, high rise and even some ex-council.

Small Firms Loan Guarantee Scheme

- this is a UK wide government back scheme which helps provide an element of security for a bank, which will enable them to lend to the customer without security.

Standard variable rate

- a mortgage lender’s main interest rate. This can move in line with increase and decreases of Bank of England base rate.

Start-up business

- a new business venture with no trading record

Status

- a short term to describe a borrowers credit record and employment situation. Also see “Non-Status”.

Term assurance

this is the simplest form of life assurance. For a fixed period of time (the Term) and for a fixed premium (normally monthly), the insurance company will cover the person assured against death.  Should the insured person or persons die during the term, the insurer pays out the sum assured. If they survive the term the plan ceases with no value.

Term

- the length of time that a loan or mortgage is taken out over. At the end of the term the mortgage/loan must be repaid.

Third party security

- this may arise where a party unconnected to the lend offers some security for a charge or perhaps acts as a guarantor e.g. a brother may offer an unencumbered property as security for a loan that his younger brother is taking out.

Timber framed

- a method of house construction.

Treasury product

- a mortgage or loan that has links to interest rate management , not totally tied into base rate changes e.g. fixed rates or capped rates.

Typical APR

- see Annual Percentage Rate earlier. Normally used in adverts to comply with the consumer credit act. The idea is to give an indication of the cost of a loan or mortgage where all the costs of credit have been taken into account.

Unemployed

- not in employment or receiving any regular salary

Unemployment Insurance

- also see accident, sickness and unemployment insurance (ASU). This is an insurance policy that meets the cost of your monthly mortgage payments. Cover is limited and excludes such things as voluntary redundancy  

Unencumbered

- term used to describe property that has no borrowing outstanding on it.

Valuation

- an inspection carried out for the benefit of the lender to ascertain if a property offers good security for a loan. Whilst the borrower is given a copy of the report it cannot be relied upon when deciding on whether to buy the property or not. If you want a report you can rely on then you are best to instruct a valuer to carry out a House or Flat Buyer’s report or a full structural survey.

Valuation fee

- a fee paid by the prospective borrower for the lender’s inspection of the property. Sometimes a special deal will include a free valuation fee.

Variable rate

- an interest rate that varies over the term of the loan.